New York Attorney General Investigating Exxon Mobil For Securities Fraud In Connection With Climate Change

The New York Attorney General, under the Martin Act – a New York state law that confers broad powers on the Attorney General to investigate financial fraud – has begun an investigation of Exxon Mobil to determine whether the company lied to the public about the risks of climate change or to investors about how such risks might hurt the oil business. According to people with knowledge of the investigation, speaking on condition of anonymity, Attorney General Eric T. Schneiderman issued a subpoena to Exxon Mobil demanding extensive financial records, emails, and other documents.

Whether Exxon Mobil began disclosing the business risks of climate change as soon as it understood them is likely to be a major focus of the New York case. The people with knowledge of the case said the attorney general’s investigators were poring through the company’s disclosure filings made since the 1970s, but were focusing in particular on recent statements to investors. The investigation focuses on whether statements the company made to investors about climate risks as recently as this year were consistent with the company’s own long-running scientific research.

The inquiry would include a period of at least a decade during which Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences – and uncertainties – to company executives. Exxon Mobil has been disclosing such risks in recent years, but whether those disclosures were sufficient has been a matter of public debate.

Last year, for example, the company warned investors of intensifying efforts by governments to limit emissions. “These requirements could make our products more expensive, lengthen project implementation times and reduce demand for hydrocarbons, as well as shift hydrocarbon demand toward relatively lower-carbon sources such as natural gas,” the company said at the time. But in another recent report, Exxon Mobil essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that. “Meeting these needs will require all economic energy sources, especially oil and natural gas,” it said.

The Exxon inquiry might expand further to encompass other oil companies, though no additional subpoenas have been issued to date. Many oil companies have funded lobbying efforts and research on climate change, so prosecutors would most likely be able to search through vast amounts of material. The industry has also resisted pressure for years from environmental groups to warn investors of the risks that stricter limits on carbon emissions could have on their businesses.

Energy experts said prosecutors may decide to investigate companies that chose to fund or join organizations that questioned climate science or policies designed to address the problem, such as the Global Climate Coalition and the American Legislative Exchange Council, to see if discrepancies exist between the companies’ public and private statements.

British Petroleum (now BP), Shell Oil, Texaco (now part of Chevron) and Exxon, along with several manufacturing companies, were all members of the coalition, a group of companies and trade associations that started an advertising campaign in the 1990s opposing Washington’s involvement in strong international efforts like the Kyoto Protocol initiative to reduce greenhouse gas emissions. Energy experts said internal documents from member companies about climate change could contradict what the companies said as part of the coalition, which disbanded in 2002.

To date, lawsuits trying to hold fuel companies accountable for damage they are causing to the climate have failed in the courts, but most of those have been pursued by private Plaintiffs. For several years, advocacy groups with expertise in financial analysis have been warning that fossil fuel companies might be overvalued in the stock market, since the need to limit climate change might require that much of their coal, oil, and natural gas be left in the ground.

Individuals with knowledge of the case said the attorney general’s investigation of Exxon Mobil began a year ago, focusing initially on what the company had told investors about the risks that climate change might pose to its business. In February, several news organizations, including The New York Times, reported that Wei-Hock Soon, a Smithsonian researcher who had published papers questioning established climate science, had received extensive funds from fossil fuel companies, including Exxon Mobil, without disclosing them.

More recently, Inside Climate News and The Los Angeles Times have reported that Exxon Mobil was well aware of the risks of climate change from its own scientific research, and used that research in its long-term planning for activities like drilling in the Arctic, even as it funded groups from the 1990s to the mid-2000s that denied serious climate risks. If those reports are true the oil giant must be held accountable for its actions.

Some experts see the potential for a legal assault on fossil fuel companies that would be very much like the litigation against tobacco companies in recent decades. The history at Exxon Mobil appears to differ, however, in that the company published extensive research over decades that largely lined up with mainstream climatology. Thus, any potential fraud prosecution might depend on exactly how large a role company executives can be shown to have played in directing campaigns of climate denial. I suspect we haven’t seen the last of the ongoing investigations – stay tuned!